Thinking about buying a home or refinancing your mortgage? You’ve probably come across the term LVR – Loan-to-Value Ratio. Sounds a bit finance-y and intimidating, right? Don’t worry—I’ve got you covered! Let’s break it down in a simple, no-stress way.
So, What Exactly Is LVR?
LVR is just a fancy way of measuring how much you’re borrowing compared to the value of the property. It’s calculated like this:
LVR = (Loan Amount ÷ Property Value) × 100
Let’s say you’re eyeing a home worth $500,000 and you’ve saved up a $100,000 deposit (nice work!). That means you need to borrow $400,000, making your LVR:
($400,000 ÷ $500,000) × 100 = 80%
Easy, right? Now, let’s talk about why this number is a big deal.
Why Does LVR Matter?
Lenders use LVR to decide how risky it is to lend you money. The higher your LVR, the riskier you look to them because you own less of the property. Here’s why that matters:
Loan Approval – A lower LVR (typically below 80%) makes it easier to get approved.
Interest Rates – The lower your LVR, the better interest rate you might get. A high LVR? That could mean higher interest rates (boo!).
Lender’s Mortgage Insurance (LMI) – If your LVR is above 80%, you’ll likely have to pay LMI—a hefty extra cost that protects the lender (not you).
Refinancing Perks – If you’re thinking about refinancing, your LVR plays a role in securing better rates or avoiding LMI all over again.
How to Lower Your LVR (and Save Yourself Some Cash!)
If your LVR is on the high side, don’t panic! Here are some ways to bring it down and get on lenders’ good side:
Save a Bigger Deposit – The more you put down, the less you need to borrow. Simple math!
Consider a More Affordable Home – A slightly cheaper property means a smaller loan, which helps your LVR.
Boost Your Property Value – Renovations or a rising market can increase your property’s worth, making your LVR look better.
Make Extra Repayments – Chipping away at your mortgage reduces your loan amount and improves your LVR over time.
Final Thoughts
LVR might seem like just another banking term, but it plays a huge role in your home loan journey. A lower LVR = better deals, less stress, and more savings. If you’re unsure where you stand, chatting with a mortgage expert can help you figure out your best options.
Got LVR questions? Let’s talk! Drop a comment or reach out—we’re here to make home loans easy.
